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Subchapter V is a streamlined version of Chapter 11 that Congress created for small businesses. It lets an eligible business keep operating, restructure its debts, and pay creditors over time under a court-approved plan, generally with less cost and delay than a traditional Chapter 11 case. This guide explains who qualifies, how a case proceeds, and what we will need from you.
A business or individual may elect Subchapter V if it qualifies as a "small business debtor" (11 U.S.C. § 1182(1), incorporating § 101(51D)). In general:
Subchapter V runs on a fixed schedule. The dates below run from the day the case is filed (the "order for relief").
We file the petition and elect Subchapter V. The automatic stay immediately stops most collection actions, lawsuits, and foreclosures. You continue running the business as "debtor in possession" (§ 1184).
The U.S. Trustee appoints a Subchapter V trustee (§ 1183(a)). This trustee does not take over your business. The trustee's role is to monitor the case and help you and your creditors reach a consensual plan (§ 1183(b)(7)).
You meet with the U.S. Trustee's office to review your books, bank accounts, insurance, and tax filings. We prepare you for this meeting.
You answer questions under oath from the trustee and any creditors who attend. It is a meeting, not a court hearing, and we attend with you.
You make payments under the plan. For a plan confirmed over objection, it must commit your projected disposable income for three to five years (§ 1191(c)(2)), and the discharge is entered after those payments are completed (§ 1192).
* Typical timing, not a statutory deadline. Actual dates depend on the court and the U.S. Trustee's calendar.
| Feature | Traditional Chapter 11 | Subchapter V |
|---|---|---|
| Who may propose a plan | Debtor first; creditors may file competing plans after exclusivity ends | Only the debtor (§ 1189(a)) |
| Creditors' committee | Usually appointed, and its lawyers are paid by the estate | None unless the court orders otherwise (§ 1181(b)) |
| Disclosure statement | Required and court-approved before voting | Not required unless the court orders otherwise (§ 1181(b)) |
| Owners keeping their equity | Generally limited by the "absolute priority rule" if unsecured creditors object | Owners may retain their interest under a plan confirmed over objection that commits projected disposable income (§ 1191(b)–(c)) |
| U.S. Trustee quarterly fees | Payable throughout the case | Not charged (28 U.S.C. § 1930(a)(6)); the Subchapter V trustee's fees are paid instead |
| Home mortgage | Loan on principal residence generally cannot be modified | May be modified if the loan was used primarily in the business, not to buy the home (§ 1190(3)) |
A debtor in possession owes duties to the court and to creditors (§ 1187). The case goes smoothly when these are handled on time.
Your most recent balance sheet, statement of operations, cash-flow statement, and federal tax return, filed with the petition or promptly after.
A report each month showing income, expenses, and cash. We provide the form and review each report before filing.
Close existing business accounts and open new accounts designated for the case, as the U.S. Trustee requires.
Pay taxes that come due after filing, including payroll and sales taxes, and keep insurance in force.
Ordinary business continues. Sales of assets outside the ordinary course, new borrowing, and payments on old debts need court approval first.
Answer the trustee's questions and share information promptly. The trustee often helps broker agreement with creditors.
Ordinarily, no. You remain in possession and keep operating. The court can remove a debtor from possession for cause, such as fraud or gross mismanagement (§ 1185(a)). If that happens, the Subchapter V trustee operates the business (§ 1183(b)(5)(B)).
Creditors vote, and a consensual plan is the goal. If a class of creditors votes against it, the court can still confirm the plan if it does not discriminate unfairly and is fair and equitable, which in general means committing your projected disposable income over three to five years.
A company's Subchapter V case does not by itself release an owner who personally guaranteed the company's debts. Guarantors can sometimes be protected through the plan or a separate agreement, but that has to be planned for. Tell us about every guarantee at the start.
If the plan is consensual, you usually pay creditors directly. If it is confirmed over objection, the Subchapter V trustee makes the payments unless the plan or confirmation order provides otherwise (§ 1194(b)).
A confirmed plan can sometimes be modified, and the court may convert or dismiss the case if payments are not made. Let us know early if the business falls short, while options remain open.
Every business is different. An initial consultation lets us review your debts, confirm eligibility, and discuss whether Subchapter V fits your goals.
FactorLaw is a debt relief agency. We help people file for relief under the Bankruptcy Code.
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